The test for ‘hardship’ for the purposes of setting aside financial agreements under section 90K(1)(d) is a constant and continuing threat for those entering into financial agreements during the course of and prior to the commencement of a relationship/marriage.
Section 90K(1)(d) of the Family Law Act 1975 says:
Circumstances in which court may set aside a financial agreement or termination agreement
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside.
Accordingly, s 90K(1)(d) of the Act looks at the court’s power to set aside a financial agreement where there has been a material charge occurring by reason of the care, welfare and development of a child, and by reason of that change to the child or the parent, they will suffer hardship if the financial agreement is not set aside.
Section 90K(1)(d) requires not only enquiry as to the parties’ circumstances at the time of entering into the financial agreement with those at the time the material charge has been asserted, but also an assessment as to the degree of hardship that might be suffered by a child or the parent party should the agreement not be set aside.
In Daily & Daily  FamCAFC 304, the full court was concerned with the operation of s 90K(1)(d) and how to apply the ‘hardship’ test.
The test for hardship is well settled: it requires a comparison of the position of the child, or the person with caring responsibility, if the agreement remains in place and their position if the agreement is set aside (Frederick & Frederick  FamCAFC 87 at ; Fewster & Drake  FamCAFC 214 at 67). So there are two limbs to the applying the test correctly. In Fewster, the court said at 67:
The concluding words of s 90K(1)(d) are “if the court does not set the agreement aside”. Logically and inevitably those words require the court to undertake some comparison between the position of the child, or the person with caring responsibility, if the agreement remains in place and the position of that child or person if the agreement is set aside. It is only by doing so that the court can place itself in a position to determine whether there will be hardship if the agreement is not set aside. The primary judge did not undertake such a comparison.
In Daily, the husband appealed the trial judge’s decision to set aside the financial agreement under s 90K(1)(d).
The facts in Daily were as follows:
In the event of separation, the parties shall divide their assets and financial resources in full and final settlement of all claims between the parties for settlement of property and spousal maintenance either in the past, present or in the future and under Part VIIIA of the Family Law Act 1975 as amended as follows:-
(a) As and from the date of separation, the husband shall retain for his sole use and benefit absolutely free from any further claim or demand of the wife:
(i) His assets and liabilities as set out in Schedule A;
(ii) His work entitlements, long service leave, annual leave and other work related benefits including any superannuation or pension entitlements accumulated after the date of the marriage;
(iii) His clothing, jewellery and personal effects, and
(iv) Any gifts or inheritances received by him from any source.
(b) As and from the date of separation, the wife shall retain for her sole use and benefit absolutely free from any further claim or demand of the husband:
(i) Her assets and liabilities as set out in Schedule B;
(ii) Her work entitlements, long service leave, annual leave and other work related benefits including any superannuation or pension entitlements accumulated after the date of the marriage;
(iii) Her clothing, jewellery, furniture acquired prior to the marriage and personal effects;
(iv) Any gifts or inheritances received by her from any source.
(c) The net matrimonial assets will be equally between the parties.
e. Schedule A of the financial agreement recorded the husband as having specified net assets of $404,282 in total value. Schedule B recorded the wife as having specified net assets of $32,287 in total value and Schedule C recorded the parties as having specified joint net assets of $142,761 at the time of signing.
At trial, unsurprisingly the parties’ position were as follows:
At paragraph 26 of the appeal judgement, the court notes the primary matters the wife relied upon at trial in support of her argument under this ground:
At 258: The wife relies upon the following matters:-
(1) That at the time that the agreement was made she was employed as a fulltime serving public servant.
(2) That following marriage two children were born namely [X], now aged 13 years and [Y] now aged 10 years.
(3) That the parties agreed the wife would cease her fulltime employment and take on the primary role of caregiver for the children.
(4) That the husband continued in his fulltime employment which resulted in a substantial increase in superannuation entitlements from $67,669 to $970,578 and savings of $74,230 to $693,508 at or about the time of separation.
(5) That as a result of the wife’s role as primary carer to the children she suffered a significant reduction in her earnings and has returned to part-time employment only now comprising 0.8 of fulltime equivalent.
(6) That her capacity to contribute to superannuation and accumulated savings was diminished and in any event is significantly less than the current financial circumstances of the husband.
(7) As a result of the marriage, the wife’s capacity to earn an income and support herself and the children has been substantially diminished.
The primary judge also found that the birth of the children constituted a material change in circumstances. At para 268 of the trial judgment, the trial judge said “Whether contemplated or not, the advent of children should be considered as a material change in circumstances since the making of the financial agreement.” Further, in relation to whether as a result of the material change (the advent of children), the wife would suffer hardship, the trial judge said:
represents significant hardship that results not just from the care, welfare and development provided by the wife for the children but also her current circumstances of being able to provide appropriately for herself and the children.’
Interesting, the husband’s appeal was framed in a way that was different to how the appeal court determined the error by the trial judge. The appeal judgment does not set out the bases on which the husband’s appeal was framed.
The trial court identified the error of law, in regard to the misapplication of the hardship test as follows:
Accordingly, the husband’s appeal was successful, and with some hesitation, the matter was remitted for re-hearing.
Daily helpfully reiterates the concept of hardship for the purposes of s 90K(1)(d), and the analysis required between the terms of the agreement and what it provides for, and the entitlement under s 79 should the court decide to set aside the agreement.
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